Wang Xiangwei

China Briefing | From Ant to Didi and private education firms, China stock rout is a mess of its own making

Sudden clampdowns on tech and tutoring firms, announced with little to no warning or explanation, have spooked investors and sparked sharp sell-offs

Chinese leaders should publicly communicate rationale, pay attention to market sentiment and give professionals latitude to get ahead of issues of global impact

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People walk over a pedestrian bridge with a monitor for stock exchange values in Shanghai, China. Photo: EPA

Wang Xiangwei

Published: 9:30am, 7 Aug 2021Updated: 9:30am, 7 Aug 2021

It seemed not long ago that China’s stock markets in Shanghai and Shenzhen were very much out of step with the global markets, mostly governed by the top-down approach of heavy-handed government intervention.

Chinese retail and institutional investors had long been resigned to the not-so-secret arm twisting and ministerial diktats that often came out of the blue and caused wild market swings, whereas foreign investors looked on in bemusement.

But circumstances have changed greatly since China’s economy became the second largest in the world, and Beijing promised to allow the market to play a “decisive” role in the economy. Now the central government’s political or economic decisions often carry global implications, particularly as overseas investors can buy Chinese stocks – not only through the qualified foreign institutional investor programme and schemes such as Shanghai-Hong Kong stock connect, but also through hundreds of China-based companies listed in Hong Kong, New York, London and elsewhere.

Old habits die hard, and China’s secretive politics and utter failure to publicly and clearly explain policies that impact stock markets worldwide may not only cost investors billions of US dollars in losses, they will more importantly raise doubts about the country’s capital markets and its overall intention of opening up.

The perfect example is that a recent spate of intense regulatory moves – which started in November, when billionaire Jack Ma’s financial-technology conglomerate Ant Group was suddenly forced to halt a mega share sale, to the latest clampdown on after-school tutoring companies – have forced global investors to flee from China’s best stocks, including leading technology companies, while erasing more than US$1 trillion in market value by some estimates.

The sell-off has continued as there have been rising fears that Beijing could target more industries after its crackdown on technology and private education companies. Alas, the stock rout could have been greatly mitigated if Chinese officials were more transparent and better at managing their messages to markets at home and abroad. Instead, they looked clueless and appeared to show little consideration of how their forceful actions would impact stock markets and damage China’s reputation.